Stock & Profit

By Sanjay Chhabria is an equity analyst and investment consultant based at Raipur (Chhattisgarh). At the time of writing this, he doesn't have any position in the stock mentioned above. He is bringing a weekly Investment newsletter "Market-View" since April 2001 to help small(retail) investors take an informed investment decision. He also appears on CNBC TV 18(Mid cap radar). He invites Readers to send him email to get free 1 week trial offer of "Market -View". He welcomes comments, feedback & investor queries at valueinv@sify.com. He can also be contacted on 9893200307.

MANAKSIA LTD(Rs 31)(Rs 2 paid up)
(BSE Code- 532932 NSE Code- MANAKSIA)

(P/E- 1.5, Dividend Yield-6.5%, Market Cap- 215 cr.)

Manaksia manufactures value-added metal products and metal packaging products. The Kolkata-headquartered Manaksia Group is India's largest secondary producer of value-added aluminium rolled products with 15 manufacturing facilities in the country and three abroad. The business of the Manaksia can be categorised into metal products, packaging products, mosquito coils, and engineering and other goods. The metal products include aluminium alloy ingots, rolled sheets/coils, galvanised steel sheets/coils, color coated metal sheets and sponge iron, while packaging products comprise roll-on pilfer proof (ROPP) caps, crown closures, plastic caps and metal containers. Manaksia also undertakes contract manufacturing of mosquito coils for reputable brands. For funding its expansion plans and general corporate purposes, the company came with an IPO of Rs 248 crore, comprising fresh issue of 155 lakh shares at Rs 160 per share in December 2007.

Manksia has vertically integrated across a number of products, resulting in reduction in manufacturing cost. Its metal-management skills and innovations in manufacturing and product enhancement have enabled it to manufacture advanced metal packaging products and retain and add customers like Hindusthan Coca Cola Beverages (Coke), Reckitt Benckiser, Dabur India, Jyothy Laboratories, Eveready Industries and McDowell Group and other major beer and liquor manufacturers. The aluminium division has attracted reputed alloy ingot users like TVS Motor, Orient Fans and Toyota Tsusho Corporation as customers. The company does the bulk of its business in Nigeria, which offers two main advantages. One, it gets aluminium scraps at a cheaper rate compared to international prices since the export of aluminium scrap is banned by the Nigerian government. Second, it gets cash incentives on export of the finished products. Since the company has been getting this benefit for more than a decade, it expects this trend to continue for the next few years too. This will help it to maintain high margins, according to the management.

In the fiscal 2007-08, Manaksia's consolidated net sales stood at Rs 1,147.37 cr., up from Rs 827.76 cr. in 2006-07. The consolidated profit after tax in 2007-08 was Rs 128.19 cr. (Rs 92.03 cr.). This translates into an EPS of Rs 18.4 on Rs 2 paid up share(Equity-13.9 cr.) and P/E multiple of 1.7 at its current price of 31. A 100% dividend (Rs 2 on equity shares of the face value of Rs 2 each) was declared for 2007-08. In the first half of 2008-09, the consolidated turnover of Mankasia stood at Rs 777 cr. (Rs 532 cr.). The profit after tax was Rs 86.5 cr. (Rs 64.5 cr.)..

Going forward, the company plans to focus on its metal business, which mainly consists of steel and aluminium-rolled products. Manaksia claims to be the largest player in secondary aluminium rolling in India. This gives the company economies of scale and helps it to reduce raw material costs, thereby resulting in better operating margins. The company has strong technical know-how in producing value-added metal products and expects to leverage this to generate higher profits. The management expects the metal business will grow at the rate of 40-45% in coming years on a conservative basis. At current levels, the stock trades at 1.7 times its FY2008 earnings(Rs 18.4) and 1.3 times its estimated FY 2009 earnings(Rs 23-24). Investors can buy the Manaksia stock at this level and add more on declines for decent returns over the medium-long term. Accumulate.

GITANJALI GEMS LTD(Rs 80)(ACCUMULATE)
(BSE Code- 532715 NSE Code- GITANJALI)

(P/E- 4, Market Cap- 680 cr.)

Gitanjali Gems (GGL) is an integrated diamond and jewellery manufacturer and its operations include sourcing, cutting and polishing roughs into diamonds and the crafting of diamond and other jewellery. Over the last 5 years, GGL has established world class scale in diamond and jewelry manufacturing. The present business mix of the co. is cut and polished diamond is 50-55% and jewelry is in the range of 45-50%. The business mix is likely to change in favour of jewellery retail in the coming years as margins and value addition are much higher in jewelry and jewelry retail vis-à-vis cut & polished diamonds.

The branded jewellery segment in India, in which GGL operates, is reportedly growing at more than 20% per annum. Retail jewellery sales offer around 15% net profit margin as against less than 3% in the polished diamonds business. Thus, a shift to jewellery business and retail expansion will strengthen the bottom line of GGL.. Presently, GGL is the only company in India manufacturing the Asmi brand of jewellery, which is owned by the DTC. With established brands and integrated nature of business, GGL has strong prospects for topline growth and healthy profit margin. The company also continues to grow through the M & A route. Gitanjali has already snapped up several jewellers in India ssover the past few years and this year completed the acquisition of Rogers Jewellers, one of the oldest US family-run chains.

The company sells jewellery in India under four major brands: Gili, Nakshatra, Asmi and D'Damas. These brands are well established in the market and feature in top 10 best-known jewellery brands in India. Gili and Nakshatra are acknowledged as super brands. For branded jewellery, GGL has established a large retail setup, which includes 26 exclusive distributors across India, around 620 outlets including those in host stores, five standalone stores and 17 franchisee stores in 30 cities and towns in India.

GGL has a unique business model that places it in a distinct position in the gem & jewellery and retail businesses in India. The retail sector in India is currently estimated to be US$ 200 billion, out of which only 3% is made up by organized retail. However, this segment is growing swiftly and over the next few years a very large shift from unorganized retail to organized retail is expected. GGL is also diversifying and has already started building its presence in lucrative businesses like infrastructure and lifestyle. It is developing SEZs to cater to the export production needs of domestic and international gem and jewellery manufacturers. This space looks promising and offers GGL an opportunity to increase its production capacity and allows it to benefit from the cost saving opportunities these parks have to offer.

For the half year ended September 2008, GGL's net sales stood at Rs 2,509 cr.(up 20%) and net profit stood at Rs 90.41 cr. (up 18%) on consolidated basis. GGL's FY08 consolidated net sales were at Rs 4828.05 cr. versus Rs 3467.44 cr.(FY07). Its FY08 consolidated net profit was at Rs 160.69 cr. versus Rs 91.75 cr..(FY07) On a equity of 85 cr.(Promoters' stake-47.77%), the EPS was Rs 18.9 and the dividend declared was 18%.

GGL has set up a wholly owned subsidiary Gitanjali Lifestyles Ltd (GLL) on May 04, 2007. It is being positioned to facilitate and to promote the growing luxury malls across the growing luxury retails markets. GGL has received in-principle approval from state and central government for the development of SEZs at Nagpur and Aurangabad. The Company incorporated 5 new wholly owned subsidiaries namely Raigad Gems SEZ Ltd, Aurangabad Gems SEZ Ltd, Nanded Gems SEZ Ltd, Nashik Multi Services SEZ Ltd and Nagpur Multi-Product Gems SEZ Ltd as special purpose vehicles (SPV) for the developmental activities of various SEZs. GGL also acquired the Brand Asset ´Nakshtra´ through one of its wholly owned subsidiary Gitanjali Ventures DMCC, a company incorporated in Dubai. The said Brand Asset have been acquired from ´The Diamond Trading Company Ltd´ (DTC).

The current price of Rs 80 discounts its consolidated FY08 EPS of Rs 18.9, by a PE multiple of 4.23 and its FY09E EPS of Rs 21, by a PE multiple of 3.8. Over FY02-FY07, GGL has established world class scale in diamond and jewelry manufacturing, clocking 28% revenue CAGR and 36% PAT CAGR. Gitanjali's broad product range, strong brand equity and significant retail presence along with sightholder status and strong network have enabled it a strong hold in domestic and international markets. Investors can start accumulating the Gitanjali gems stock for decent gains over the medium-long term.